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22 August 2012
2012 Interim Results Announcement
2
Disclaimer
Cautionary note regarding forward-looking statements
This presentation material contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company. These forward-looking statements represent the Company’s expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Certain statements, such as those that include the words “potential”, “estimated”, “expect”, “anticipates”, “objective”, “intends”, “plans”, “believes”, “estimates”, and similar expressions or variations on such expressions may be considered “forward-looking statements”. Forward-looking statements involve inherent risks and uncertainties. Readers should be cautioned that a number of factors could cause actual results to differ in some instances materially, from those anticipated or implied in any forward-looking statement. Forward-looking statements speak only as of the date they are made, and it should not be assumed that they have been reviewed or updated in the light of new information or future events. Trends and factors that are expected to affect the Company’s results of operations are described in the “Financial Review” and “Business Review and Medium Term Strategic Plan”.
Agenda
3
Industry Review
Financial Review
Q&A
Business Review & Medium Term Strategic Plan
Conclusion
4
Financial Review
5
Results Highlights
For the six months ended 30 June
2012 2011 Change (RMB mn) (RMB mn) (%)
Revenue 832 1,179 -29.4%
Gross profit 417 722 -42.2%
Operating profit 53 277 -80.9%
Profit attributable to equity holders 97 225 -56.9%
Gross profit margin 50.2% 61.3% -11.1 p.p.
Operating profit margin 6.4% 23.5% -17.1 p.p.
Net profit margin 11.7% 19.1% -7.4 p.p.
693394
247
185
39
21
0
500
1,000
1,500
1H 2011 1H 2012
600
979
990
614
189
218
0
500
1,000
1,500
1H2011 1H2012
832 1,179
China (Kappa China and others)
Japan (Kappa Japan and Phenix)
Revenue by Market & Brand
Apparel
Footwear
Accessories
5.1 p.p.
5.6 p.p.
0.5 p.p.
Revenue by Product – Kappa China
Accessories 3.5% (4.0%)
Apparel 65.7% (70.8%)
Footwear 30.8% (25.2%)
Remark: Comparable figures for 1H2011 are shown in brackets
1H2012
16%
Revenue by Market, Brand & Product
84% 74%
26%
RMB mn RMB mn
6
7
Gross profit margin by market Gross profit margin by product – Kappa China
Gross profit margin of the China segment decreased mainly due to: (1) the Group’s effort in clearing off-season products at discounted prices in 1H2012; (2) the Group provided greater support to distributors and offered more wholesale discounts.
* Gross profit of the Japan segment also decreased owing to inventory clearance, thus led to a drop in gross profit margin as well.
Gross Profit Margin by Market & Product
66.7%
55.8%58.1%
49.4%
66.8%
57.2%64.5%
53.9%
30%
40%
50%
60%
70%
1H 2011 1H 2012
Apparel Footwear Accessories Overall
64.4%
53.6%
45.0%40.8%
61.3%
50.2%
30%
50%
70%
1H 2011 1H 2012
China Japan Overall
For the six months ended 30 June
2012 2011 Change (RMB mn) (RMB mn)
A&P expenses 90 129 -30.2%
As a % of sales 10.8% 11.0% -0.2 p.p.
Staff cost 105 103 1.9%
As a % of sales 12.6% 8.7% 3.9 p.p.
Product R&D 45 52 -13.5%
As a % of sales 5.4% 4.4% 1.0 p.p.
During the period, actual amounts of A&P and design & product R&D expenses decreased compared to 1H2011, but overall % to revenue increased due to significant sales drop caused by order volume control and inventory clearance.
Operating Expenses
8
Inventory
294
508446
125145
304
0
200
400
600
0
200
400
600
1H2011 FY2011 1H2012
596
426327102
81
112
0
50
100
150
0
200
400
600
1H2011 FY2011 1H2012
Inventory turnover days Affected by inventory repurchase in 2011, inventory level increased sharply at the end of 2011.
The Group exerted extra efforts in inventory clearance in 1H2012, causing inventory level to drop by 12.2%. However, the inventory turnover days increased due to decrease in sales and related cost of sales in 1H2012.
Trade receivable days In view of the overall market environment, credit terms have been moderately extended in
order to enhance the Group’s support to major distributors.
Trade Receivables
Inventory & Trade Receivables – China Segment
RMB mn Days
9
RMB mn Days
For the six months ended 30 June
2012 2011 (RMB mn) (RMB mn)
Operating cash inflow/ (outflow) 10 (52)
Maintain Solid Net Cash Position
(1)Included restricted bank deposit of RMB135.8 million (31/12/2011: RMB136.5 million) (2)Included investments in treasury products issued by major commercial banks in the PRC
As at 30 June 2012 As at 31 December 2011
(RMB mn) (RMB mn)
Cash and bank deposits(1) 3,343 3,775
Investment in treasury products(2) 1,452 1,068
Less: bank loans - - Net bank balance and treasury products held 4,795 4,843
10
11
Interim Dividend & Share Buyback
For the six months ended 30 June
2012 2011
Earnings per share 1.75 3.99
Interim dividend 0.53 1.19
Interim special dividend 0.70 1.59
Interim dividend per share
1.23 2.78
Actual payout ratio 70% 70%
Share buyback
Between April and May 2012, the Group bought back a total of 100mn China Dongxiang shares at a consideration of HK$104 million, representing 1.8% of its issued share capital
Interim dividend
RMB cents
12
Industry Review
13
A Development Bottleneck in the Overall Sportswear Industry
China Sportswear Industry
The industry has matured and entered a stage of moderate development after rapid growth
Intense competition resulted from the expansion by both domestic and international sportswear
and casual wear brands
Product homogeneity and intense market competition
leading to decreasing SSS
Declining sell-through rate of newly-launched products
Accumulated inventory
Lower retail discounts
Increasing operating costs
Reducing operating margin
Macro-economy
Vicious Cycle
Macro-economy
14
Business Review & Medium Term Strategic Plan
15
Overview of Medium Term Strategic Plan
3
Brand Product
Channel New Business
• Strengthen the clear and unique Kappa brand philosophy
• Emphasize on the brand DNA of “sports, fashion, sexiness and style”
• Integration of multiple resources
• Develop the instant reaction capability
• Kappa Kids
• Kappa Eyewear
• RDK • Phenix
• Change in sales pattern
• Long-term and healthy development of sales channels
4
1 2
16
Brand - Clear and Unique Brand Philosophy
Kappa’s Unique Brand
Philosophy
1a
• Passion
• Overwhelming dynamic
• Vigorous and natural curves
• Technique-oriented
• Artistic
• Participation and enjoyment
• Perfect integration of sports and fashion
• Colorfulness
• Trend of literature and art
• Belief in the beauty of sports
• Advocacy of sports and freedom
• Eternal pursuit of creativity and personalization
Style
Sports
Fashion
17
Brand - Mix and Match Concept
• New theme of Kappa : Mix and Match
• Affluent choices of fabric for different series in product positioning
• Highlight Kappa’s embedded features:cutting, materials, details
1b
Mix and Match Concept
18
Brand - Mix and Match Concept (continued)
1b
Casual Party
Street Work
19
Brand - Mix and Match Concept (continued)
1b
iKappa
• Provides mix and match styles from Kappa designers
• An innovative background simulation function enabling consumers to mix and match better styles
• Not only is it an online sales platform, it also serves as a platform to convey Kappa’s fashion culture, latest trends and unique style
20
Brand - Play with Style
1c
Play with Style
21
Brand- Innovative and Smart Marketing
1d
Microfilm Social Media
Sports Event Sponsorship Drama Sponsorship, Joint
Marketing with Bazaar
• Festive blessings, song dedication, blog postings and photo album promotion during festivals
• Promoting Kappa products with photos of online drama “Mahua Funage”
(开心麻花)
• Engage in joint marketing with Bazaar, conveying the brand philosophy of mix and match to audience
• Promote Kappa’s brand positioning as a trendy sport through microfilm
• Kappa continued to be the official sponsor of Italian Serie A Club AS Roma
22
Product - Integration of Multiple Resources
China Design Team • Establish Taicang factory as the
Research & Technology Center (RTC) in China
• Nurture China team in RTC
Design Team Collaboration of R&D Centers in China and Japan
b a
Japan Design Team
Korea Design Team
2
23
c d
Sensitive to market performance
Maintain close cooperation with core distributors
Pay close attention to sales figures
Strengthen technology
development department
Introduce technical consultants from Japan
Expand sources of fabric
Swift Response in Production
• Control costs throughout all stages in product planning and development
• Innovation is not the only focus of R&D and technology, enhancing production efficiency is also key to achieve a win-win scenario
Product - Integration of Different Resources
Develop Instant Reaction Capability Enhance Cost Control
2
24
Change in Sales Pattern
Channels – Maintain Long-term and Healthy Development
3
Inventory clearance
• Set targets for different phases and the flexible inventory resale polices, execute with efficiency through e-commerce and factory outlets
• Completed the repurchase of inventories totaling RMB1.45 billion in terms of tag price as of the end of December 2011
• Resold products amounting to RMB600 million at tag price through factory outlets and e-commerce platforms in 1H2012
• From “pre-orders” to “prop orders” • Set conservative sales order targets,alleviating inventory pressure by
increasing the “prop orders” proportion • Monitor retail sales performance (Sell-Through) • Less SKU presented at trade meetings
25
4
• Phenix is the sole uniform sponsor of Norway National Team in 2012
• As at 30 June 2012, there were 26 Phenix stores in China
• As at 30 June 2012, there were 18 RDK stores
Phenix Robe di Kappa
Kappa Eyewear Kappa Kids
Proactive New Business Development
The Group’s multi-brand competitiveness is the pivotal point of Dongxiang Concept Store’s new integrated operating strategy
Trendy
Purity
Quality
Outdoor
Dongxiang Concept Store 4
26
27
Conclusion
28
Pragmatism, Passion and Innovation
Corporate Integrated Management
Strengthening Financial Control
Strategic Goals 2012
Brand Product Channels New Business
“Brand + Product” Macro Supply Chain
System
“Brand + Retail” New Business
Model
Q&A